National Treasury is making changes to retirement legislation to encourage investors to save more for their retirement and to improve the alignment between the different types of retirement products. Although not all of the original proposals are going ahead, we believe the changes that are going through are a positive step towards improving retirement savings in this country. We encourage you not to let the uncertainty around retirement reform inhibit your willingness to save for your retirement; it is very difficult to make up for lost time.
Below is a summary of the key changes which may impact you as a member of the Allan Gray Retirement Annuity Fund, Pension Preservation Fund, or Provident Preservation Fund.
1. Changed tax deductions on contributions
From 1 March 2016, SARS will allow for tax deductions of up to 27.5% of the higher of your taxable income or remuneration for contributions to pension, provident and retirement annuity funds with a maximum annual deduction of R350 000. Any excess contributions may be rolled over to future years. This will be consistent for all retirement products and will replace the current tax deductions.
2. Increased threshold at retirement for retirement annuity and pension preservation fund members
At retirement, if the market value of all of your accounts in the Allan Gray Retirement Annuity Fund, or all of your accounts in the Allan Gray Pension Preservation Fund is less than R247 500, you will be allowed to take the full market value of these accounts in cash. If the market value of all of your accounts in one of these products exceeds R247 500, you will be allowed to take up to a third of the value as a cash lump sum. The remaining amount invested in this product will have to be transferred into a living annuity or used to buy a life annuity. This will apply to all retirements processed after 1 March 2016.
Please note that this threshold will not apply to the Allan Gray Living Annuity. Investors are currently only allowed to make a full withdrawal from a living annuity when the market value falls below R50 000 if they took a cash portion at retirement, or R75 000 if they did not take a cash portion.
3. Postponement of the harmonisation of provident fund benefits
According to Treasury, a core principle of the legislation is that the tax deductions discussed in point 2 are provided on the condition that there is annuitisation, i.e. at retirement, members have to use at least two thirds of their retirement fund benefits to buy an annuity that will pay them an income in their old age. In the case of provident funds, the requirement to annuitise has been postponed from 1 March 2016 to 1 March 2018. The tax deductions will, however, still be allowed while the review of this requirement is underway. If no agreement is reached in the next two years regarding annuitisation, this tax benefit to provident fund members will be reviewed. Your rights to take the full value of any provident funds and Allan Gray Provident Preservation funds accounts you may own as a cash lump sum when you retire currently remain unchanged